The Hidden Cost of Weak Budget Projections: Forecast Deviation and Debt Buildup in Barbados

Peer Reviewed icon Peer Reviewed
Date issued
Dec 2018
Subject
Fiscal Policy;
Debt Restructuring;
Fiscal Deficit
JEL code
F34 - International Lending and Debt Problems;
O23 - Fiscal and Monetary Policy in Development;
E62 - Fiscal Policy;
H81 - Governmental Loans • Loan Guarantees • Credits • Grants • Bailouts;
H68 - Forecasts of Budgets, Deficits, and Debt;
H63 - Debt • Debt Management • Sovereign Debt
Country
Barbados
Category
Policy Briefs
The Barbados economy has been challenged over the last decade by elevated fiscal deficits and a rapid build-up in debt. While the country has made efforts to address this challenge through revenue and expenditure measures, budget targets have often been missed. This study indicates that budget under performance has contributed to the debt accumulation in Barbados. When comparing actual to budgeted targets set out in the budget, the study indicates that there has been an underestimation of expenditure and lower-than-expected revenue in several years. Particularly, systematic underestimation of transfers without adequate compensation in revenues has increased debt, underscoring the need for institutional and fiscal reforms. At the same time, the under-execution of capital expenditure highlights the need for better allocation to this growth-promoting spending, which has suffered from limited fiscal space.